RBI intervention prevents rupee from hitting a new low

The Reserve Bank of India (RBI) on Friday intervened in the forex market and sold dollars in order help the weakening rupee. According to dealers, if the central bank would not have supported by selling dollars, the rupee would have touched a new all-time low on Friday.

The rupee ended at 60.24 a dollar, compared with a previous close of 60.13. During intra-day trades, it touched a high of 60.01 and a low of 60.59, a level very close to its all-time low of 60.77 hit last month.

RBI has been intervening in the forex market despite depleting forex reserves. RBI data released on Friday shows that the total reserves fell by $ 3 billion during the week and stood at $ 285 billion as on June 28.

According to dealers, FirstRand Bank bought dollars heavily and there was also dollar demand from corporates which lead to the weakness of the rupee.

On Thursday, RBI governor D Subbarao's statement that the central bank does not have an exchange rate target had dampened market sentiments. The weakening rupee also led to a rise in yields of government bonds. The yield on the 10-year benchmark government bond 7.16 per cent 2023 ended at 7.50 per cent compared with the previous close of 7.42 per cent.

But on the liquidity front, the scenario became more comfortable as banks borrowed Rs 4,525 crore on Friday from RBI's Liquidity Adjustment Facility compared with yesterday's borrowing of Rs 6,180 crore. Banks are preferring to tap Collateralised Borrowing and Lending Obligation (CBLO) market over RBI's liquidity window. CBLO volumes touched a record high of Rs 1,10,891 crore compared with Rs 1,03,390 crore on Thursday.

The street is now awaiting the US non-farm payrolls numbers. "If the data is good, it will raise fears of pull back of third round of quantitative easing by the Federal Reserve in 2013. If that happens, then next week, the rupee will touch a new all-time low," said a currency trader.